“ReDigi 1.0 is dead — long live ReDigi 2.0 and beyond.” That’s what I wrote after ReDigi — a digital content exchange that allows you to purchase and resell digital music — lost an important legal battle against Capitol Records in late March.

Capitol filed a complaint against ReDigi in New York in early 2012 for copyright infringement, alleging the company’s service was illegal on a variety of levels. ReDigi had argued that its version 1.0 technology, which let people upload to ReDigi servers and resell songs they’d purchased from iTunes, wasn’t copying, which would put it in violation of U.S. copyright law. The judge disagreed, writing in his ruling: “The novel question presented in this action is whether a digital music file, lawfully made and purchased, may be resold by its owner through ReDigi under the first sale doctrine. The Court determines that it cannot.”

I spoke with ReDigi CEO John Ossenmacher shortly after the verdict about its ramifications for would-be digital resellers and what it means for ReDigi as a viable marketplace for used content rolling forward.

Your reaction to the verdict?

We all plan and we all think about what are the consequences or likely outcomes of things that might happen, and I have to say, one of the things we’re really grateful for… Our business was growing nicely before this verdict, but since it came out, we’ve been overwhelmed. Our system has almost gone down a couple times. We’ve been deluged with people not only wishing us well, but signing up and offering help. It’s been crazy.

A lot of people who might not have otherwise know who you were.

It’s like this whole unintended consequence of what happened.

This ruling obviously has ramifications well beyond ReDigi. It’s not just music, it’s really digital everything, isn’t it? The future of how we think about digital artifacts in the U.S.?

I can’t name this person, but an executive at a major record label said, “You know these guys at ReDigi, unfortunately they’ve let the proverbial genie out of the bag and we can never go back.” Now that Amazon and Apple have had a sniff around the potential size of this marketplace, the genie is out of the bag and we’re going to have to figure out what to do about it.

The interesting thing about the suit Capitol filed is that it’s only for a small portion of our business. Obviously our site’s still up, we’re still fully operational. It only affects consumers. I guess any ruling against us is a ruling against consumers, because after all we’re just a marketplace and we invest a whole lot of time, effort and money to protect consumers’ right to resell. Yes, we make something along the way in our commission, but it’s much bigger than that. And so any ruling has been a ruling that’s negative to consumers. You know, whether it’s Capitol Records or someone else, basically they’re saying to their consumers, “Hey, if you buy it digitally, you don’t really own it anymore.”

This case has really catapulted the level of visibility to consumers. You can’t go back, you know? Nobody can go back from this now.

Tell us a little about what the judge specifically ruled on here and how it relates to ReDigi today.

What the judge’s ruling did with what we call ReDigi 1.0, is he basically said he doesn’t like people copying stuff to the cloud — that that’s an unlawful reproduction. He chose to make his point in this case about getting a copyrighted good to the cloud. At ReDigi, we actually move the bits, but since most people actually do copy digital files, the judge’s ruling has huge ramifications for anybody doing anything in the cloud.

It’s different in Europe. Europe already agreed and said you can go ahead and move this data, that a digital bit is a digital bit and it doesn’t matter, as long as you have ownership, you have ownership. And so our European site is going to continue to operate with all of the pre-downloaded goods people have legally acquired, and we’ll continue to allow those to be loaded into the service.

But in America, at least temporarily, the judge essentially took away the rights of consumers to be able to resell things they’ve legally purchased.

ReDigi 2.0 is apparently exempt from this ruling and you’re apparently up and running in spite of it all. Can you explain the difference between ReDigi 1.0 and 2.0?

When we launched 2.0 last year, it still did all of the stuff I’ve just mentioned for goods people already owned. So it still said hey, if you already own a good we’re not going to copy it, we’re going to move it. But we went further with ReDigi 2.0.

What ReDigi 2.0 said to our users was, if you have ReDigi on your device, what we’re going to do is, we’ve built this really cool software that allows the original purchase to go right to your ReDigi cloud, and then we download your personal-use copy right to your iTunes folder or wherever you want it instantaneously, so the user doesn’t really notice the difference. Now when you want to sell it or stream it or whatever, you’re doing it from the original that’s in our cloud. We started that mid-last year.

When I first heard the verdict it was dismaying, but then I went and read the full court document and it sounds like the judge really was trying to limit this to the legal particulars, you know, is it copying or not copying, because if it’s copying, it’s technically a copyright violation. Can you explain why it’s not copying?

It’s a complicated question. My basic answer is, what we built with our technology in Europe we didn’t need, because the court said look, a digital object is a digital object and because it’s a digital object what you bought was ownership, you bought the right to have that object. Whether it’s the first copy, the second copy, the third copy, the fourth copy, because everybody makes copies of their digital objects, it doesn’t matter, you have the right to have one and you can resell one — the one you actually have ownership of.

I think what happened is, Capitol did a good job convincing the judge here that the world of physical things is how the law has to work. You know, a hard drive is not like a CD, it’s not how a hard drive works. The best way to explain it is, a digital object is always moving around on your hard drive. You defragment your hard drive, it moves around. You could be doing different things to improve or optimize performance of your hard drive and it might move it around. It’s how digital works. Things are always in flux on a hard drive.

That said, we created a patent-pending technology that we went above and beyond for. I mean, I honestly don’t think we should have even had to, but we went to great lengths to say we’re actually going to pick up those bits that are moving around on your drive and we’re going to move them, literally, a portion at a time, so that what’s in the cloud is never at the same time on your device.

It’s not like Amazon’s patent, which was basically copy to the cloud, then delete the source file. Amazon’s premise was that since there’s only one instance left and it’s in the cloud and it’s from the same owner, it’s not really a copy anymore because a copy implies that you have more than one — the new file is now the original because that’s simply how digital works. It’s exactly the same as the original. It’s not like putting a book on a Xerox machine and you can tell they’re different.

But we never wanted to do it that way. We actually, physically, in a digital way, pick up those bits, and as we move the bits, they’re no longer on the source drive. It’s not like we’re deleting them, it’s not like when people delete a directory file and the stuff is still really there, or if they really want to delete like crazy they use an overwrite program. We don’t do any of that. We’re literally moving those bits. Those bits are gone forever from the computer.

Doesn’t that create a data corruption problem? What about sudden interruptions during transfers?

Yeah, one of the negatives with the 1.0 technology is that when you went to upload a file, if you lost Internet connection for whatever reason during a transmission, well, in an Amazon or some other copy and delete mechanism it wouldn’t matter because the software verifies the copy has occurred before it deletes the source file. That’s not so with ReDigi’s technology. If something happens while we’re actually doing a transaction and you’ve moved just a tiny portion of the file, that file is forever unusable and unrecoverable.

We went to the point in our customer service agreement to say, since this is how our technology works, that even if something happens that’s not ReDigi’s fault, say your computer loses power mid-transfer and the file’s irrevocably corrupted, we’ll buy you a brand new one.

So it very much is not copying. Even the judge admitted this is really more a technology issue, and that that makes it more an issue for Congress. Federal judges certainly have a lot of power, and they have the right to rule the way they want, which we respect. But we certainly believe differently. We think that the law is supposed to keep up with technology — that technology is not supposed to be held back by the law.